We provide a critical service to our clients interested in making informed decisions about the future of their closely held businesses and in obtaining financing. With our timely and efficient service, we deliver peace of mind and impartial, defensible analyses.
Our team of highly skilled professionals with over 50 years combined experience and advanced degrees and certifications (CFA, CPA, CVA) are able to provide independent and objective analyses and opinions. We have substantial expertise in the valuation of companies, assets (including intangibles); fractional interests in real estate and corporate limited partnerships; 409As; damage calculations and support; and family law.
There many diverse reasons for a business valuation. We provide impartial, justifiable valuations for:
- Tax and estate planning, i.e. family limited partnerships, fractional interests
- Family law – Divorce litigation
- Financing – for example, SBA conventional
- Liquidation or reorganization of a business
- Buy-sell agreements
- Mergers and acquisitions (buying a business; selling a business)
- Divestitures and significant corporate changes
- Employee Stock Option Plans (ESOPs) – 409A
Flexibility of Scope – AND Price!
Every valuation is unique to the facts and circumstances of the business under analysis and just importantly, the purpose of the valuation. Some of our clients do not need or cannot afford a full, detailed analysis, and we never try to push someone toward something they do not need. Often, it is another professional service provider (attorney, CPA, etc.) that knows the specific situation and is guiding the client’s needs.
For this reason, GSL has the flexibility to provide our clients with the level of diligence and form of reporting that meets our client’s needs. These may range from an oral reporting of an estimated range of value based on review of limited information to a full narrative report based on thorough due diligence.
In other words, every project requires a customized engagement that is appropriate to the situation. The range and types of valuation analyses we provide to clients include:
- Valuations for taxes and planning
- Preliminary estimates of value
- Valuation opinions for litigation
- Valuation for financing
- Valuation reports for transactions
- Goodwill gain/loss analyses
- Feasibility studies for investment capital
- Financial and operational viability opinions of financially distressed companies
- Customized reports
In general, we offer three different valuations and price packages (see the bottom of the page for pricing:
- Estimate of Value Report – This is shortest and most cost-effective valuation, but also the most limited in depth of analysis. It includes an analysis of historical financials, and market research for the subject company’s industry. The client is generally asked to provide several assumptions and we do the rest. Most often, one valuation method is chosen as the basis of value and typically a range of value is communicated either orally or in a letter of transmittal.
- Summary Report – Essentially, a Summary Report is a detailed analysis using all available resources to determine a value, but the narrative is limited. This report contains a summary of the material factors that led to the value conclusion but is intended to be shorter than a Full Report. Summary Reports are typically 25-60 pages in length and still touch on all pertinent factors. In other words, it is not the analysis that is diminished, but rather the presentation is limited. Generally, our clients have found that if there is no current or pending litigation involved, a Summary Report will suffice.
- Full Report – Also known as “full scope” or “self-contained” report, this is the most thorough of the three reports we offer. It is typically used for the IRS or courts and must be presented in full detail as to how the value was derived. It is not uncommon for a Full Report to be 100 pages or more. Remember that what we are presenting is an argument in this case, and we are presenting it to folks that review business valuations all day long and are very familiar with such matters. So the most justifiable and defensible argument must be made and should not be taken lightly. Otherwise, the client is just throwing his/her money away. While we certainly cannot make guarantees, note that the tax savings that can be derived from a well thought-out valuation argument can far outweigh the cost of its preparation.
Factors involved in the Analysis
The appraisal process requires a multidimensional examination of a business and its environment. A full-narrative report typically encompasses the following factors that can impact a company’s valuation:
- Operational analysis, historical and projected
- Balance sheet analysis – FMV of assets and liabilities
- Financial comparison to industry norms
- Governmental regulations
- Industry factors and outlook
- Intellectual property
- Fair market compensation for management
- Competitive positioning
- Valuation and market analysis, including comparable public and private company assessments
What is value?
We get asked this question all the time, and there is no one right answer. The National Association of Certified Valuation Analysts uses the term “Standard of Value” to delineate several different types of value. 90% of the time, our clients are interested in the fair market value (FMV) of their business.
The generally accepted definition of fair market value comes from Internal Revenue Service Ruling 59-60. Revenue Ruling 59-60 defines fair market value as:
“the price at which an asset would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, and both parties are able, as well as willing, to trade and are well-informed about the asset and the market for that asset.”
Other standards of value, while less common, do apply in certain cases. The next most common standard is synergistic value, which takes into account the strategic value of the acquisition to a specific buyer. For example, if an investor in the same industry is buying the business as a strategic acquisition to realize economies of scale and by doing so will be able to generate more profit than the business historically generated, an investment value approach is utilized to arrive at a more relevant value of the business under those circumstances.
The last is fair value, which in most states is the statutory standard applicable in cases of shareholder dissents. The Financial Accounting Standards Board (FASB) also defines fair value as “the price that would be received for an asset or paid to transfer a liability in a transaction between marketplace participants at the measurement date.”
Approaches to Valuations
While valuation is a mix of art and science, our approaches – and the applications thereof – provide you the satisfaction and confidence of knowing how much your business is worth.
Income approach – The Income Approach to business valuation uses the economic principle of expectation to determine the value of a business. To do so, one estimates the future returns the business owners can expect to receive from the subject business. These returns are then matched against the risk associated with receiving them fully and on time. The returns are estimated as either a single value or a stream of income expected to be received by the business owners in the future. The risk is then quantified by means of the so-called capitalization or discount rates.
The methods which rely upon a single measure of business earnings are referred to as direct capitalization methods. Those methods that utilize a stream of income are known as the discounting methods. The discounting methods account for the time value of money directly and determine the value of the business enterprise as the present value of the projected income stream.
Market approach - Using comparable company, transaction or industry multiples of value, we can assess the fair market value of your business or partnership. Two methods utilized in this approach are the Guideline Transaction Method (GTM), which analyzes actual corporate transactions of similar firms, and the Guideline Public Comparable Method (GPCM), which uses multiples of publicly-traded peers as a basis of value.
Asset approach - The value of asset-based analysis of a business is equal to the sum of its parts. The asset approach to business valuation is generally (but does not have to be) based on the principle of replacement cost. With this approach, all of the business’ assets and liabilities are adjusted to fair market value and the following accounting equation is applied:
FMV Assets – FMV Liabilities = FMV of the firm
The most frequently-asked questions that we receive are below:
- How much does a valuation cost?
- How long does a valuation take?
- What do you need to complete the valuation?
- What specifics are in the valuation?
While every engagement is unique, to address the first two questions, we present the following table based on our experience:
Upon engagement, we will submit to a checklist of documents/files that we will need. At the minimum, we need your most current financial statements and those going back three years (if available). Once we start, we will most likely ask for additional information for our files. We can assist with compiling the data we need.
Regarding what’s in the report, a typical Summary or Full Report contains the following information:
Description of the Valuation Assignment
Standard and Premise of Value
Scope of the Report
Economic and Industry Overview
Approaches to Valuation
Capitalization of Earnings Method
Discounted Cash Flow Method
The Guideline Public Comparable Method (GCPM)
The Guideline Transaction Method (GTM)
Adjusted, Pro Forma Balance Sheet
Discounts and Premiums
Minority Interest Discount/Control Premium
Discount for Lack of Marketability
Final Fair Market Value (FMV)